The four major European reinsurers – Munich Re, Swiss Re, Hannover Re and SCOR SE are among the top tier of global reinsurers by business profile, Fitch Ratings says.
Large franchises and a high degree of diversification underpin Fitch’s assessment of very strong business profile for each group.
The capital adequacy of the four groups, based on Fitch’s Prism Factor-Based Capital Model (Prism FBM) assessment, is ‘Very Strong’.
The regulator-assessed solvency coverage for each group is consistent with Fitch’s Prism FBM assessment of ‘Very Strong’.
Reinsurance rates continued to harden in the January 2020 renewals period, particularly on loss-affected lines of business.
While high claims from loss-affected lines of business depress profitability, risk-adjusted price rises are gaining momentum and terms and conditions are improving for reinsurers.
However, the uncertainty surrounding the effects of the coronavirus pandemic makes the financial performance of the reinsurance sector hard to predict.
Maintaining very strong earnings metrics in challenging market conditions is an important differentiator for ‘AA’ rated companies compared with lower-rated insurers, Fitch notes.
Three of the four reinsurers generated a satisfactory net income return on equity (ROE) of 10% on average for 2019 due to positive contributions from life and health reinsurance and solid investment returns, while large catastrophe and man-made losses aligned with the long-term average.
Swiss Re had reserving deficiencies and high claims inflation in the US casualty book, leading to a low ROE of 3%.
